Chapter 1

Question 1

What’s the purpose of an Audit conducted under the Companies Act 2006?

Answer 1

• To ensure accountability ensuring the Directors are acting in the company’s best interest
• To promote confidence of the intended user
• To express an opinion re truth and fairness of the financial statements

Question 2

What is the audit opinion showing?

Answer 2

That the financial statements show a true and fair view.

True - conforms to reality, presented in accordance with laws and standards and reflects actual transactions.

Fair - free from bias

Question 3

What’s the benefits of assurance?

Answer 3

• Credible and reliable information
• Increased credibility reduces risk to those who provide finance
• Draws attention to deficiencies
• Results in improved internal controls from suggestions from the management letter
  -Deters fraud

Question 4

What is the Expectation Gap?

Answer 4

The difference between what the auditor does and what is perceived

Question 5

How can the Expectation Gap be narrowed?

Answer 5

• Educating users
• Extending auditors responsibilities
• Include auditors responsibilities in planning letter and engagement letter

Question 6

What’s the difference between an audit and any other assurance engagements?

Answer 6

Other Assurance Engagements
- Limited Assurance
- Less extensive (less work)
- Negative conclusion
- “Nothing has come to our attention…”

Audit
- Reasonable Assurance
- More extensive (more work)
- Positive opinion
- “The subject matter is true and fair in all material respects”